Mutual Mistake Doctrine
The victim of a dog bite brought an action against the dog owner's insurer as the assignee of the owner's claims under a homeowners policy. This case is Caron v. Horace Mann Insurance Company, 993 N.E.2d 708 (2013).
The Fowlers purchased a homeowners policy from the Horace Mann Insurance Company. They met with Bode, an agent for Horace Mann, to discuss the policy and one of the questions that arose concerned the ownership of a dog. The Fowlers owned an American Bull Dog and the agent did not express any concern with that breed of dog. When the Fowlers received the policy, they skimmed it and did not take notice of an animal liability endorsement that limited coverage to $25,000 for claims arising from animal bites.
The Fowlers mistakenly assumed that the policy liability limits of $500,000 applied to full coverage for dog bite claims. The agent also believed this and in fact, neither party discussed coverage for animal bite claims.
Several months later, Caron was bitten in the face and severely injured by the Fowlers' dog. Caron sued and was awarded $250,559.96. Horace Mann paid $25,000 of the judgment and maintained that this was the extent of its liability. Caron then sued Horace Mann alleging that the Fowlers and Horace Mann were mutually mistaken as to the application of the animal liability endorsement and so, the policy should be reformed by striking the endorsement. The trial court ruled in favor of Caron and this appeal followed.
The Supreme Judicial Court of Massachusetts, Essex, noted that insurance policies may be reformed under the same principles as any other contract. The doctrine of reformation is driven by respect for the parties' intent and gives effect to the terms mutually agreed upon by the parties. The court quoted Couch on Insurance that “equity will reform a contract that, by reason of mutual mistake, does not express the real agreement between the parties. The mistake must either be mutual or be made by one party and known to the other party”.
In this instance, the court found that there was no dispute that under the policy as written, coverage for claims arising from a dog bite was limited to $25,000. It was also undisputed that Horace Mann fully intended the endorsement to be included in the policy and to limit the Fowlers' coverage for animal bite claims. It was true that the Fowlers mistakenly believed the policy provided up to $500,000 in personal liability coverage for any incident, but there was nothing in the record to suggest that the Fowlers expressed this understanding to the agent. The same can be said of the agent. Therefore, the question before the court was whether this mutual misunderstanding provided a basis by which Caron may claim mutual mistake.
The court said that the mutual mistake doctrine exists to effectuate the agreement intended by the parties to a contract where the contract language fails to capture that agreement. Central to this doctrine is the fundamental underpinning that the parties had reached an agreement on a point that they intended to enshrine in the written contract but which, for some reason, was mistakenly omitted from that written contract. In this instance, the court found that the agent's misunderstanding as to the application of the endorsement cannot serve as the necessary prerequisite to a claim of mutual mistake. Although the agent's misunderstanding was inconsistent with the Fowlers' misunderstanding, it was not a prior expressed agreement because the agent never communicated the misunderstanding. Where the agent never discussed the extent of coverage for animal bite claims with the Fowlers, their mistaken assumption that the policy included the full $500,000 in personal liability coverage for animal bites lacks the essential element of mutuality in the mistake.
The fact that the Fowlers silently harbored an assumption that the policy would provide the full $500,000 in liability coverage for any incident at all is not a basis for reformation of a policy whose written animal liability endorsement plainly contradicts such an assumption. Simply put, the written policy indisputably limited liability coverage for claims stemming from an animal bite to $25,000 and nothing in the record fully, clearly, and decisively demonstrates that this amount of coverage fails to reflect a previous agreement between the parties to the policy. Thus, there is no basis upon which to reform the contract.
The decision of the trial court was vacated and remanded.
Editor's Note: The mutual mistake doctrine discussed and upheld by the Supreme Judicial Court simply reflects the point that the insured should read the policy. Indeed, the doctrine holds that the insured is presumed to have assented to the terms of a new policy if it is retained without reading or read without complaint and rejection.
Whether the agent in this case needs to be concerned about an E&O claim is not discussed by the court, but the admonition to the insured is clear: read the policy and all endorsements to make sure the coverage is correct as intended.